978-0134125053 Chapter 6 Part 3

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47) Sydney just found out that her dog needs an expensive operation. Sydney is a trusted

employee in a small firm, and she knows that nobody double checks her deposits. However, her

moral beliefs do not allow her to take advantage of the lack of controls. Because there is no

_________, Sydney is less likely to commit fraud.

A) perceived pressure

B) rationalization

C) perceived opportunity

D) financial motivation

Question Type: Application

48) Bill works a minimum wage job. Due to a drug habit, he is always short on funds;

additionally, he feels underpaid, and says to himself the the company owes him. Bill knows that

the company has security cameras placed above each register, and will do surprise cash counts

throughout each shift; therefore, because there is no __________, Bill is less likely to commit

fraud.

A) perceived pressure

B) rationalization

C) perceived opportunity

D) internal controls

Question Type: Application

6.4 Know what a Certified Public Accountant (CPA) does

1) Audits confirm the validity and reliability of accounting information.

Question Type: Concept

2) Generally Accepted Auditing Standards are developed by the Securities and Exchange

Commission.

Question Type: Concept

3) Certified Public Accountants perform external audits of a company to confirm that the

financial statements are fairly presented according to GAAP.

Question Type: Concept

4) A qualified opinion is the best type of audit opinion.

Question Type: Concept

5) A disclaimer of opinion may be considered a red flag by investors.

Question Type: Concept

6) The agency that requires financial audits of publicly traded companies is the:

A) Financial Accounting Standards Board.

B) Securities and Exchange Commission.

C) Federal Government.

D) Internal Revenue Service.

Question Type: Concept

7) The audit opinion that all companies try to achieve is a(n):

A) disclaimer of opinion.

B) qualified opinion.

C) adverse opinion.

D) unqualified opinion.

Question Type: Concept

8) The audit opinion issued when there are material misstatements in the financial statements is

the:

A) disclaimer of opinion.

B) qualified opinion.

C) adverse opinion.

D) unqualified opinion.

Question Type: Concept

9) The audit opinion issued when the financial statements are fairly presented without exception

is the:

A) disclaimer of opinion.

B) qualified opinion.

C) adverse opinion.

D) unqualified opinion.

Question Type: Concept

10) The audit opinion issued when the auditors are unable to express an opinion is the:

A) disclaimer of opinion.

B) qualified opinion.

C) adverse opinion.

D) unqualified opinion.

Question Type: Concept

11) The audit opinion issued when the auditors are taking exception to a specific treatment of

accounting information is the:

A) disclaimer of opinion.

B) qualified opinion.

C) adverse opinion.

D) unqualified opinion.

Question Type: Concept

12) Another name for a “clean” audit opinion is a(n):

A) disclaimer of opinion.

B) qualified opinion.

C) adverse opinion.

D) unqualified opinion.

Question Type: Concept

13) Another name for an “except for” audit opinion is a(n):

A) disclaimer of opinion.

B) qualified opinion.

C) adverse opinion.

D) unqualified opinion.

Question Type: Concept

14) Certified public accountants are licensed by the:

A) state.

B) SEC.

C) the college or university from which they earned their accounting degree.

D) AICPA.

Question Type: Concept

15) What is an audit opinion?

A) Prepared by management, this is a written evaluation of the quality of work done by the

independent accountants.

B) Prepared by the independent accountants, this is a written evaluation of the company’s

financial statements.

C) Prepared by management, this is a written evaluation of the quality of work done by the

internal accountants.

D) Prepared by the independent accountants, this is a written evaluation of the goods or services

offered for sale by the company.

Question Type: Concept

16) A qualified opinion is issued when which of the following occurs?

A) The auditors have taken exception to an accounting application.

B) The auditors find the financial statements to be fairly presented in accordance with GAAP.

C) The auditors were unable to gather the necessary information to issue a clean opinion.

D) A and C are both instances when a qualified opinion is issued.

Question Type: Concept

17) Under which circumstance would an adverse opinion NOT be issued?

A) The financial statements are not fairly presented according to GAAP.

B) The auditor lacks independence.

C) There are material misstatements in the financial statements.

D) All of the above would lead to an adverse opinion.

Question Type: Concept

18) A bank would look at an audit opinion prior to making a loan, in order to determine:

A) whether or not fraud has been committed in the company.

B) whether or not they can rely on the financial statements.

C) whether or not the net income is on par with industry standards.

D) whether or not the company is in compliance with regulations.

Question Type: Application

6.5 Know the legal and ethical responsibilities of an accountant, including the requirements of

the Sarbanes-Oxley Act (SOX)

1) The Public Company Accounting Oversight Board (PCAOB) reports to the SOX.

Question Type: Concept

2) Many states require CPAs to participate in continuing education that deals with ethics.

Question Type: Concept

3) Behaving ethically and behaving legally are the same.

Question Type: Concept

4) Ethical conduct refers to how society requires people to act.

Question Type: Concept

5) A person who reports unethical behavior is called a whistleblower.

Question Type: Concept

6) The Sarbanes-Oxley Act requires a company‘s stockholders to be more responsible.

Question Type: Concept

7) The Sarbanes-Oxley Act only applies to publicly traded companies.

Question Type: Concept

8) According to SOX, external auditors may report to either upper management or an audit

committee.

Question Type: Concept

9) Persons who report unethical behavior are known as:

A) snitches.

B) whistleblowers.

C) enforcers.

D) writers of codes of ethics.

Question Type: Concept

10) In response to a large number of high profile cases involving accounting fraud, the U. S.

Congress in 2002 passed the:

A) Internal Revenue Fraud Act.

B) Securities and Exchange Commission Fraud Act.

C) Sarbanes-Oxley Act.

D) Federal Reserve Act.

Question Type: Concept

11) The Sarbanes-Oxley act applies to:

A) all corporations.

B) all partnerships.

C) all publicly traded companies.

D) international companies doing business in the United States.

Question Type: Concept

12) Under SOX, the external auditors must now report to:

A) the management of the company being audited.

B) an audit committee.

C) the Securities and Exchange Commission.

D) the Public Company Accounting Oversight Board.

Question Type: Concept

13) Under SOX, the Chief Executive Officer and Chief Financial Officer must sign off on:

A) all annual reports by the company.

B) all quarterly reports by the company.

C) all annual and quarterly reports by the company.

D) the external auditor’s opinion.

Question Type: Concept

14) Under Sarbanes-Oxley, those officers signing off on the reports must have evaluated the

company’s internal control within the previous:

A) 90 days.

B) six months.

C) nine months.

D) year.

Question Type: Concept

15) One of the biggest factors in implementing SOX was:

A) reviewing the financial reports.

B) establishing internal control procedures.

C) disclosing deficiencies in internal controls.

D) the cost of implementing the system.

Question Type: Application

16) Kat Neese is an accountant at S&C Co. She suspects that her boss is making illegal

adjustments to the accounting records after she gives them to him. If Kat doesn’t say anything or

report her suspicions, she has:

A) committed a crime.

B) protected the company from a lawsuit.

C) protected the stockholders.

D) committed an unethical act.

Question Type: Application

6.6 Know the difference between book value and market value of stockholders’ equity

1) Book value reports the past while market value focuses on the future.

Question Type: Concept

2) US GAAP uses the cost principle and is less conservative than international standards.

Question Type: Concept

3) Book value and market value refer to the same thing in regards to a company’s stock.

Question Type: Concept

4) Market value is the amount stockholders could expect to receive if they were to sell their

stock.

Question Type: Concept

5) Sassycat, Inc. has a reported book value of $2 million and a market value of $10 million. This

means that the company is valuing its stock at 5 times what shareholders are willing to pay.

Question Type: Application

6) ________ represents what a business was paid for its stock plus the profits that have been

retained in the business.

A) Historical value

B) Market value

C) Replacement value

D) Book value

Question Type: Concept

7) Using U.S. GAAP, book value typically ________ market value.

A) is equal to

B) is lower than

C) is higher than

D) bears no relationship to

Question Type: Concept

8) Using IFRS, book value typically ________ market value.

A) is closer to

B) is lower than

C) is higher than

D) bears no relationship to

Question Type: Concept

9) ________ represents what future owners will pay present owners for their business.

A) Book value

B) Market value

C) Replacement value

D) Future value

Question Type: Concept

10) Renoir, Inc. has a reported book value of $20 million; however, the market value of Renoir‘s

stock is $64 million. This means:

A) the company is not reporting its assets correctly on the Balance Sheet.

B) the market thinks the company is overvalued.

C) the market thinks the company is worth over three times what the Balance Sheet reports.

D) the CEO should get a raise.

Question Type: Application